Black swans are negative risk results that are very unlikely to happen, but have a huge impact when they do occur. Major IT projects are often victims to black swan events. In fact, one in six projects has a cost overrun of 200% and go over schedule by 70%. A major issue with IT projects is not the average overages; it’s the fact that the occurrence of a black swan event as part of a major IT project is becoming so common. For example, a strong company, Levi Strauss, proposed a relatively small $5 million IT project.  After five years, the project had cost the company $192.5 million.

These issues usually come up because of the way IT affects every other aspect of a business. This is acknowledged by IT experts, who are acutely aware of the risks involved with their work.

The paper, which is authored by Bent Flyvbjerg and Alexander Budzier, gives a major example of the impact of a failed IT project is the fallout at Kmart. In 2000, it was losing its market share to leaders such as Wal-Mart and Target. In order to catch up, the company designed and implemented a $1.4 billion IT modernization. However, implementation started and it was found that the new system wouldn’t be effective in their business model and would cost even more to upkeep and customize. This is something that could have easily been found if planning and research had been more effective. Then in 2001, Kmart launched a $600 million project to update its software. This failed as well, and the combination of the two misses helped cause the company to file for bankruptcy in 2002. Similar failures occurred at Auto Windscreens and Toll Collect.

Some common themes have arisen in failed projects. 67% of companies fail to terminate unsuccessful projects – causing them to sink more and more costs into something that will not work. Also, 61% of the time, managers report that they have conflicts between the goals of management and the needs of employees – which can be partially attributed to 34% of projects not being aligned with corporate strategy. About one-third of the time, companies perform redundant work because the projects they do aren’t discussed between the different IT teams.

The author also examined successful IT projects (like one that occurred at Emirates Bank which needed to double in size midstream, but only got off schedule by 7% and over budget by 18%), and found seven key themes.  Successful deployments:

1. Stuck to the schedule
2. Resisted changes to the project’s scope
3. Broke the project into discrete module
4. Assembled the right team, included IT experts, outside experts, and vendors
5. Prevented turnover of team members
6. Framed the initiative as a business endeavor, and not a technical one
7. Focused on a single target, “ready to go live,” and measured every activity against it

Visit the Harvard Business Review website to obtain the full article.

Link: Harvard Business Review

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ERM Enterprise Risk Management Initiative 2011-12-01